FIN501 MOD5 CASE5-Net Present Value, Mergers, and Acquisitions

FIN501 MOD5 CASE5-Net Present Value, Mergers, and Acquisitions

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Net Present Value, Mergers, and Acquisitions TUI University January 5, 2012 Net Present Value, Mergers, and Acquisitions Part 2 The possibility of a merger between wireless providers is always filled with questions concerning the viability of the newly formed company. Considerations have to go well beyond increasing the newly formed company's subscriber base. Compatibility of technologies, wireless regulations, synergies between each carriers licensed markets, upcoming technologies, and the financial health of each carrier play a major role in determining the feasibility of a potential merger between wireless carriers. The United States has seen successful mergers between AT&T and Cingular Wireless, now AT&T Wireless. Successful mergers have also existed between Bell Atlantic and GTE Mobilnet—more recently, Verizon Wireless. Both AT&T and Verizon went through pain staking steps to merge technologies, divest licensed markets that were seen to inhibit competition by the department of justice, and merge human resources (Fitchard, December 19, 2011). The foundations of both mergers lie in the fact that participants in the Verizon and AT&T merger had synergies that would make the combined companies better than if they were to remain stand-alone companies (Gaughan,
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2001, ch.1, pg. 5). The wireless market now dictates that mergers need to be considered in order for a carrier to remain competitive. Wireless companies work on an economy of scales with the network being the asset. This simply means the more subscribers on a network, the less it costs to operate the network. The question now becomes if T-Mobile and Sprint are the right partners for each other. Theoretically, the impact of a merger between Sprint and T-Mobile would be advantageous to both company's shareholders. Both companies have a subscriber base well below the leading wireless carriers, Verizon and AT&T. As of 3rd quarter 2011, Verizon had over 107 million subscribers, a 6.5% increase from 2010 (Seifert, 2011), AT&T was at 100.7 million subscribers as of September 30, 2011 versus its 92.8 million customer network in 2010 (AT&T Inc., October 20, 2011). Unfortunately, T-Mobile lost over 50,000 subscribers in Q2 2011 having its lowest contract subscribers of 33.6 million
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FIN501 MOD5 CASE5-Net Present Value, Mergers, and Acquisitions

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